María Callejón y Vicente Ortún

Black-box business dynamics

This article highlights the contributions of business dynamics research to industrial policy design. Business creation support programs are widespread despite the fact that the optimal rate of business creation and destruction remains unknown. Economic analysis emphasizes heterogeneity as the most salient characteristic of industrial dynamics. A better knowledge of the different types of entrepreneurs, their behavior and their specific contribution to innovation and growth would allow to see into `black box´ of business dynamics and would facilitate the design of appropriate public policies. The empirical analysis performed shows that self-employment has a quite different economic nature than business with employees. Public programs should not promote indiscriminate entry but rather give priority to able entrants with survival capacities. Survival of entrants is positively related to their size at birth. Innovation and investment improve the survival of new manufacturing firms. Investment in R&D increases the risk of failure in new firms, although it improves the competitiveness of the incumbents.